Community Health Systems Settles Medicaid Fraud Allegations for $75 Million

A recent press release from the Department of Justice alleged that several hospitals within the nationwide Community Health System (CHS) chain made unlawful donations to various county governments in violation of state and federal Medicaid laws. The scheme occurred under New Mexico’s supplemental Medicaid program, which primarily served rural and under-served communities. This program ended in 2014.

A former CHS revenue manager exposed the alleged fraud. After a lengthy investigation, the federal government opted to intervene in the case, which it does in only a small percentage of qui tam lawsuits under the False Claims Act. In exchange for his willingness to come forward, the whistleblower will receive more than $18.5 million.

Details of the Case Against CHS

CHS is a Franklin, Tennessee-based hospital management corporation overseeing operations in facilities across 29 states. The corporation was accused of misconduct at its Eastern New Mexico Medical Center in Chaves County, Mimbres Memorial Hospital and Nursing Home in Luna County and Alta Vista Regional Medical Center in San Miguel County. However, no defendant named in the suit has accepted liability in connection with the case.

The Medicaid program runs in cooperation with both the federal and state governments. Under Medicaid funding rules, states are required to raise funds for their portion of the Medicaid program and the federal government then matches those funds. Under no circumstances are states allowed to take private donations or raise Medicaid funds through any means other than taxpayer revenue. Congress established this policy to incentivize states to curb the rising costs of maintaining the Medicaid program.

According to the allegations, the CHS-affiliated hospitals ran afoul of these regulations and routinely made donations to their various counties of jurisdiction. Chaves, Luna, and San Miguel counties are alleged to have received improper funding from CHS hospitals between August 2000 and December 2010. These funds were turned over to the state as part of the state portion of Medicaid funds and the federal government matched these funds.

Further complicating the matter, New Mexico’s supplemental Medicaid program (formerly known as Sole Community Provider), received federal matching funds at a higher rate. The program required New Mexico to raise just 25% while the feds contributed 75% to keep the program afloat.

According to the DOJ, Community Health Systems concealed the fact that the supplemental Medicaid funding came from private donations. The private donations allowed a windfall from the federal government in reimbursements. According to the allegations, CHS was reimbursed by the federal government for services under the SCP program at a rate triple what it contributed via these private donations.

Comments From the Government

The scheme perpetrated by CHS was not treated lightly by federal officials. The U.S. Attorney General’s Office stated, “Congress expressly intended that states and counties use their own money when seeking federal matching funds in order to encourage them to join the federal government in ensuring that Medicaid funds are spent on the needs of beneficiaries….When private hospitals violate the rules against hospital donations funding the state share, that important protection of the Medicaid program is destroyed.”

The New Mexico district attorney’s office also commented saying, “Hundreds of thousands of New Mexicans depend on Medicaid for medical care and other services….This litigation underscores the importance of maintaining the integrity of the Medicaid Program. Those who violate the law in order to profit from the Medicaid Program undercut the financial integrity of the program and can thus put at risk the availability of medical care and other services to those in need. We are committed to protecting the integrity of the Medicaid Program no matter the effort required or the time it may take, even in the face of the most vigorous litigation.”